Rollover Agreement

Avoid tax traps associated with stock rollover transactions. Consultants who structure turnover operations must be familiar with all the technical tax provisions necessary to obtain tax-free treatment in accordance with IRAs 351, 368, 721 and 751, as well as other tax provisions applicable at the federal, regional and local levels. Unsurprisingly, the structuring of a rollover activity must avoid a number of potential tax pitfalls. Typical Problems of Minority Owners Faced by Rollover Participants Many financial buyers introduce investment pools as part of their acquisitions. In a large study of PE investors, the authors found that 61% of PE investors expect them to bring value through improved incentives. [2] Participants are often both important members of the target entity`s management team and executives who were brought in at the closing of the rollover transaction. Like Rollover Equity, incentive equity pools are seen as an incentive for employees by giving them a tangible “skin in the game” that balances their interests with those of their owners and does not serve as a tool to attract and retain employees. In some sectors, it is not only common to make these benefits available to key workers, but it is also necessary to remain competitive in a tight market for skilled workers. Rollover equity is generally completely out of order, although we have seen rollover-equity with time and/or performance vesting requirements. Be careful, as the inclusion of future employment-related dras requirements suspends rollover capital from salary as taxable compensation by the IRS, which would lead to a taxable rollover. The purchaser also often includes a right of withdrawal of capital when the holder ceases to provide services due to death, permanent disability, termination for “cause” (less often, but sometimes without cause) or voluntary termination, but in order to obtain favourable tax treatment, the purchase price must not be reduced to a cancellation of the former employee. If the buyer intends to combine the target transaction with the buyer`s greater activity, the management team`s due diligence efforts should extend to the existing business.

Rollover participants should ask the purchaser for insurance, guarantees and commitments similar to those usually given to investors in a company`s preferred action, but the reality is that in many stock bearing transactions, this investor protection is lacking.

Comments are closed.